European Commission to asses Luxembourg, Engie tax deals

The European Commission opened an in-depth investigation into Luxembourg’s tax treatment of Engie (formerly GDF Suez) that could have given the French LNG-player unfair advantage over other companies.

The Commission intends to assess whether Luxembourg tax authorities selectively derogated from provisions of national tax law in tax rulings issued to Engie, as it appears that the same financial transaction has been treated both as debt and as equity.

This resulted in tax benefits in favor of Engie, which are not available to other companies subject to the same national taxation rules in Luxembourg, the statement shows.

Margrethe Vestager, Commissioner in charge of competition policy, said, “Financial transactions can be taxed differently depending on the type of transaction, equity or debt – but a single company cannot have the best of two worlds for one and the same transaction.”

Vestager added that the contradiction to national taxation rules could have allowed Engie to pay less tax than other companies.

As from September 2008, Luxembourg issued several tax rulings concerning the tax treatment of two similar financial transactions between four companies of then GDF Suez group, all based in Luxembourg.

These financial transactions are loans that can be converted into equity and bear zero interest for the lender. One convertible loan was granted in 2009 by LNG Luxembourg (lender) to GDF Suez LNG Supply (borrower); the other in 2011 by Electrabel Invest Luxembourg (lender) to GDF Suez Treasury Management (borrower), the commission’s statement reads.

The tax treatment appears to give rise to double non-taxation for both lenders and borrowers on profits arising in Luxembourg.

“This is because the borrowers can significantly reduce their taxable profits in Luxembourg by deducting the (provisioned) interest payments of the transaction as expenses. At the same time, the lenders avoid paying any tax on the profits the transactions generate for them, because Luxembourg tax rules exempt income from equity investments from taxation,” according to the statement.

The final result seems to be that a significant proportion of the profits recorded by GDF Suez in Luxembourg through the two arrangements are not taxed at all, the Commission said.

The preliminary assessment is that Engie avoided paying taxes on such transactions, gaining the economic advantage, which if confirmed would amount to illegal state aid.

The Commission noted the investigation does not question Luxembourg’s tax regime, nor does it prejudge the outcome of the investigation.

The investigation is the call for interested third parties and member states concerned to submit comments on the issue.

Related news

List of related news articles